Capital Gains and Cost Allocation: Tax Challenges in Indian Demergers
Abstract
A demerger is a corporate restructuring process in which one company is split into two separate entities. The primary legislation (other than share transfers, for which there exist special regulations) that will govern demergers in India is prescribed under the Companies Act, 2013 and the Income Tax Act, 1961. By breaking apart, a company can increase its operational efficiency, hone in on its core competencies, and realize its value for greater shareholder gain, as each of the spun-off ventures can focus on its unique market. It requires approvals from NCLT, shareholders, and regulatory bodies like the Securities and Exchange Board of India and, in some cases, the Competition Commission of India.
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